Truckstop and travel plaza operators are familiar with promotional pricing.
Walk into any location, and you will see two-for-one or buy-one-get-one deals (BOGOs). It is often vendors that are pushing these, but are they useful?
Here are my thoughts and some examples of how operators can execute promotional pricing as well as how I had my team of merchants carry this out.
Use the Data You Have Available
It is useful to be a data-driven retailer. Every company in our industry has data that they can utilize to help design promotions as well as review how effective promotions are.
Some back-office systems enable you to analyze items before promotion, items during promotion, items after promotion, how the promotion impacted adjacent items, etc. You get the point. If you can, take a look at the information, which will help you craft future promotions and ensure you’re making the most of each sale.
Have a Retail Promotional Strategy
Also, a retail promotional strategy is critical. What are you trying to accomplish? Are you looking to touch your customers, create a value perception, drive sales, drive units, and drive margin dollars? If you say all of the above, you are fooling yourself just by saying that and that is not a successful long-term plan.
When creating a promotional pricing strategy, I would identify top selling items in five or so categories, and I would BOGO or two-for them at really strong multiple purchase price to drive multiple prices. The products could include Marlboro Red Box, bottle water, case water, Monster, Snickers, etc. You can change the value perception of your store by highlighting top-selling items that people recognize via promotion without having to place your entire store on sale. So, we focused on apparel, entertainment and electronics.
Don’t Discount Multiple Products within the Same Category on Sale
To start, I am not a fan of placing multiple products within the same category on sale via two-for deals or buy-one-get-one deals. I much prefer this type of promotional program is spread across various categories.
When I was overseeing retail operations within the industry, I found that these types of promotions within similar categories hurt retail sales and profits. I found that in most cases across the board, BOGO promotions within categories driven by the vendor community hurt retail sales and profits. We could never sell enough of the items to overcome regular sales and profits. An example would be 20-oz soda, one-liter soda, across multiple manufacturers.
An Example of a Good BOGO Strategy
When I promoted items in two-for or BOGO in multiple categories, our locations saw significantly better improvement in sales and profits.
So, we might promote Coca Cola 20 oz. and a one-liter water, Marlboro Red Box, jeans, pocket tee, Snickers, Monster Energy, ladies sleep tee's, hot dogs, DVD, etc., as two-for or BOGO, but would not promote items in the same category, such as Coca Cola, Pepsi, 7Up, Red Bull, Monster, Gatorade, etc.
Also, we found that these types of promotions when run continuously defeats the purpose, and the promo price becomes the standard price.
We did not promote these items this way monthly unless they were part of our overall retail strategy.
We had programs within these focus areas that we always had two-for and BOGO prices attached, such as our jean program, where we sold one for one price but two for a price that was only slightly higher. Everyone else offered a two-for pricing, but they didn’t create as much of a bargain with the purchase of two as we did. How you price and how that price is perceived is enormous. By creating a perceived value with our two-for pricing, people were more likely to go ahead and purchase the second pair.
Park Avenue/MacDavid, which was our vendor at the time, was astonished how many jeans the 46 locations sold annually. If my memory is correct, those locations outsold every other competitor by a significant amount.
Remember if your goal is to sell more products, you need to drive unit purchases. Just putting everything on BOGO without a strategy will create some unit sale increase but not enough to offset the reduced profit and sales by doing so.
Create a Perception of Savings
In terms of pricing, it is critical to create a perception of savings. Otherwise, BOGO or two-for pricing becomes the norm. The model that some vendors often promote does nothing to drive value impressions and usually does not drive additional purchases.
Take the jeans BOGO idea above but apply it to any type of product or widget you sell.
If the widget was $1.79 for one or two for $3.00, that is only saving the customer 29 cents off every widget or 58 cents total. That is not enough to drive customers to purchase multiples, and thus, when they do, you are just losing money compared to if you did not promote it at all. So you are losing sales and margin. Your data would support this in most cases as you would see that you grew sales and unit sales slightly, but you lost margin dollars even after the rebates that are often associated with these types of promotions. You are just losing money compared to if you did not promote it at all.
If you took your widget to $2.49 for one or two for $3.00, then you will drive some gross margin dollars and sales as a customer is less likely to pass up such a good deal. The customer would be saving essentially $2.00 every time they purchased two widgets instead of just one. It is the same promotion but with different results.
Lastly, Consider Eliminating BOGOs
I also think it is unlikely that removing BOGOs or two-for deals that had become your norm will cause you to lose any customers. Unless you are telling me your customers are willing to get back in their truck or car and go across the street because you do not have a particular BOGO, I do not think you're alienating anyone. If, however, you have a lot of local customers and you are in a hyper-competitive corner, then care should indeed be taken before eliminating these programs across the board.
Photo credit: Brittany Palmer/NATSO
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